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Wednesday, 19 August 20
MARKET INSIGHT - GEORGE LAIOS | INTERMODAL
 Since the Covid-19 outbreak, governments and central banks around the globe have been using their ammunition and stimulus packages to keep their economies running. Trillions have been injected into global economies to fight unemployment and minimize recession. Apart from the central banks of EU, Japan, Switzerland, Sweden and Denmark, who have been offering negative rates for the past five years – a handful of central banks have now reduced their policy rates to near-zero values. Regardless of how successful or not the above mentioned five banks’ “experiment’’ has been, negative rates have undoubtedly made hedging strategies more complicated.
When it comes to the US Dollar, the Fed Chair has made it clear that negative rates are not part of its policy tools for the time being and that it is highly unlikely that rates will be pushed below zero. However, the US President has openly expressed that he views such a tool favourably. Although market experts do not expect negative Libor rates in the imminent future, no one can rule out the possibility of this happening.
These developments have had numerous effects on shipping companies who typically borrow using USD-Libor floating loans. The first and obvious outcome of lower Libor is the reduced borrowing cost. Whilst average 3-month LIBOR rates were 0.69%, 0.74% and 0.95% during the 2009, 2016 and 2020 (to date) recessions respectively, the 3-month LIBOR rate in July closed at 0.3% and has decreased approximately 6-fold since January (0.25%, as of 17/8). USD Libor loans have a zero lower bound limit which is incorporated by banks in their loan documentation (LMA) language: if Libor is less than zero “it will be deemed to be zero’’. This wording is also included in proposed documentation by the Alternative Reference Rates Committee, who is responsible for the development of Libor’s successor.
Low interest rates have also resulted in increased enquiries from bank clients who want to exploit their interest rate hedging options. Most shipping borrowers have decided not to hedge owing to the consensus that USD interest rates will not increase significantly over the next couple of years. Nevertheless, the number of shipping companies (mainly listed) that have engaged in hedging derivatives remain significant.
Under “normal” circumstances, a Cap or a SWAP for protection against an upward movement of interest rates would be the norm. However, nowadays it is essential to provision for negative interest rates. The borrower who hedges should bear in mind that USD Libor can also turn negative. Some banks even “encourage” clients to include a Floor in their SWAPS which will prevent base rates on their loans from dropping below zero. This limits the extent to which their derivatives can fall “out of the money”. Such protection comes at a premium. Indicatively, a 5 year SWAP is priced at 0.37 %, while the cost of a Floor is [10-30] bps. With rates expected to remain close to zero, the SWAP protection premium will continue to rise for as long as there are statements in favour of negative rates such as that of President Trump. However, whether the cost of protecting of a company’s future cash flows through the xyz premium is high or not is also a matter of perception and is reflective of one’s risk profile.
By George Laios
Deputy CEO, Intermodal Group
Compiled by:
Intermodal Research & Valuations
Analysts:
Ms Eva Tzima
Mr.George Panagopoulos
Disclaimer and legal disclosure: For any further queries please do not hesitate to contact our Research & Valuations Department. The information contained in this report has been obtained from various sources, as reported in the market. Intermodal Shipbrokers Co. believes such information to be factual and reliable without making guarantees regarding its accuracy or completeness. Whilst every care has been taken in the production of the above review, no liability can be accepted for any loss or damage incurred in any way whatsoever by any person who may seek to rely on the information and views contained in this material. This report is being produced for the internal use of the intended recipients only and no reproducing is allowed, without the prior written authorization of Intermodal Shipbrokers Co.
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Wednesday, 25 November 20
DRY BULK SHIPPING: CHINA REMAINS THE DRIVING FACTOR, BUT COAL POLICY IS DISRUPTING THE MARKET - PETER SAND, BIMCO
The second half of the year has provided some cheer for the dry bulk market, with all ships in the spot market averaging earnings above the break-e ...
Wednesday, 25 November 20
CHINA KICKS AN OWN GOAL WITH AUSTRALIAN COAL - FORBES
China’s annoyance at Australia’s hardline stance on political interference and demands for an independent inquiry into the root cause o ...
Wednesday, 25 November 20
MINISTER - INDONESIA JAN-OCT COAL OUTPUT AT 459 MILLION TONNES - REUTERS
Indonesia coal output in the January to October period was 459 million tonnes, the country’s energy minister told parliament on Monday.
& ...
Wednesday, 25 November 20
INDIA: MORE STEPS NEEDED TO MAKE COMMERCIAL COAL MINING ATTRACTIVE TO GLOBAL PLAYERS - LIVEMINT
India concluded its first commercial coal mine auctions earlier this month. A total of 19 coal mines spread across Madhya Pradesh, Jharkhand, Odish ...
Wednesday, 25 November 20
CHINA TAIYUAN COAL TRANSACTION PRICE INDEX UP 0.38 PCT - XINHUA
China Taiyuan coal transaction price index stood at 129.21 points Monday, up 0.38 percent week on week.
The index, released by China ...
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- Kumho Petrochemical, South Korea
- VISA Power Limited - India
- Australian Commodity Traders Exchange
- Madhucon Powers Ltd - India
- Eastern Energy - Thailand
- Pipit Mutiara Jaya. PT, Indonesia
- Straits Asia Resources Limited - Singapore
- Power Finance Corporation Ltd., India
- Karaikal Port Pvt Ltd - India
- Bhushan Steel Limited - India
- White Energy Company Limited
- Videocon Industries ltd - India
- Mercator Lines Limited - India
- Intertek Mineral Services - Indonesia
- Borneo Indobara - Indonesia
- Wilmar Investment Holdings
- Sree Jayajothi Cements Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Orica Australia Pty. Ltd.
- Indian Energy Exchange, India
- Vedanta Resources Plc - India
- Renaissance Capital - South Africa
- Lanco Infratech Ltd - India
- Kaltim Prima Coal - Indonesia
- Global Coal Blending Company Limited - Australia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PTC India Limited - India
- Bayan Resources Tbk. - Indonesia
- Gujarat Sidhee Cement - India
- SMC Global Power, Philippines
- Sinarmas Energy and Mining - Indonesia
- Sindya Power Generating Company Private Ltd
- Singapore Mercantile Exchange
- Bulk Trading Sa - Switzerland
- Salva Resources Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Parliament of New Zealand
- Commonwealth Bank - Australia
- TeaM Sual Corporation - Philippines
- Economic Council, Georgia
- Energy Link Ltd, New Zealand
- ICICI Bank Limited - India
- Global Business Power Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Ministry of Finance - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Carbofer General Trading SA - India
- Deloitte Consulting - India
- Price Waterhouse Coopers - Russia
- Manunggal Multi Energi - Indonesia
- IEA Clean Coal Centre - UK
- Kapuas Tunggal Persada - Indonesia
- Xindia Steels Limited - India
- Kobexindo Tractors - Indoneisa
- The Treasury - Australian Government
- Indonesian Coal Mining Association
- Standard Chartered Bank - UAE
- Romanian Commodities Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GN Power Mariveles Coal Plant, Philippines
- San Jose City I Power Corp, Philippines
- Edison Trading Spa - Italy
- Semirara Mining and Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Mercuria Energy - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Indian Oil Corporation Limited
- Medco Energi Mining Internasional
- Wood Mackenzie - Singapore
- Simpson Spence & Young - Indonesia
- McConnell Dowell - Australia
- Karbindo Abesyapradhi - Indoneisa
- MS Steel International - UAE
- CNBM International Corporation - China
- Samtan Co., Ltd - South Korea
- Sarangani Energy Corporation, Philippines
- Attock Cement Pakistan Limited
- SMG Consultants - Indonesia
- Meenaskhi Energy Private Limited - India
- Central Java Power - Indonesia
- Semirara Mining Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Interocean Group of Companies - India
- London Commodity Brokers - England
- Bukit Makmur.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- India Bulls Power Limited - India
- OPG Power Generation Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Posco Energy - South Korea
- LBH Netherlands Bv - Netherlands
- Africa Commodities Group - South Africa
- Rashtriya Ispat Nigam Limited - India
- PNOC Exploration Corporation - Philippines
- Mintek Dendrill Indonesia
- Sical Logistics Limited - India
- Merrill Lynch Commodities Europe
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Chettinad Cement Corporation Ltd - India
- Planning Commission, India
- Independent Power Producers Association of India
- Bharathi Cement Corporation - India
- Dalmia Cement Bharat India
- Aditya Birla Group - India
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Uttam Galva Steels Limited - India
- Jaiprakash Power Ventures ltd
- Coal and Oil Company - UAE
- CIMB Investment Bank - Malaysia
- Thai Mozambique Logistica
- Ceylon Electricity Board - Sri Lanka
- Altura Mining Limited, Indonesia
- Therma Luzon, Inc, Philippines
- SN Aboitiz Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Sakthi Sugars Limited - India
- Parry Sugars Refinery, India
- Marubeni Corporation - India
- Baramulti Group, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Jindal Steel & Power Ltd - India
- GAC Shipping (India) Pvt Ltd
- Siam City Cement PLC, Thailand
- Pendopo Energi Batubara - Indonesia
- Eastern Coal Council - USA
- Vijayanagar Sugar Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Minerals Council of Australia
- New Zealand Coal & Carbon
- International Coal Ventures Pvt Ltd - India
- Australian Coal Association
- Bhatia International Limited - India
- Coalindo Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Kartika Selabumi Mining - Indonesia
- Indogreen Group - Indonesia
- Ambuja Cements Ltd - India
- Tamil Nadu electricity Board
- Thiess Contractors Indonesia
- Kepco SPC Power Corporation, Philippines
- Oldendorff Carriers - Singapore
- Grasim Industreis Ltd - India
- Essar Steel Hazira Ltd - India
- Iligan Light & Power Inc, Philippines
- Latin American Coal - Colombia
- Aboitiz Power Corporation - Philippines
- Ministry of Mines - Canada
- Neyveli Lignite Corporation Ltd, - India
- Tata Chemicals Ltd - India
- Directorate Of Revenue Intelligence - India
- Electricity Generating Authority of Thailand
- Barasentosa Lestari - Indonesia
- Mjunction Services Limited - India
- Port Waratah Coal Services - Australia
- Goldman Sachs - Singapore
- Binh Thuan Hamico - Vietnam
- ASAPP Information Group - India
- Metalloyd Limited - United Kingdom
- Jorong Barutama Greston.PT - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Larsen & Toubro Limited - India
- Bangladesh Power Developement Board
- Kalimantan Lumbung Energi - Indonesia
- Star Paper Mills Limited - India
- Timah Investasi Mineral - Indoneisa
- Bhoruka Overseas - Indonesia
- Georgia Ports Authority, United States
- Agrawal Coal Company - India
- Indika Energy - Indonesia
- GMR Energy Limited - India
- Vizag Seaport Private Limited - India
- The University of Queensland
- The State Trading Corporation of India Ltd
- Formosa Plastics Group - Taiwan
- Indo Tambangraya Megah - Indonesia
- Riau Bara Harum - Indonesia
- Malabar Cements Ltd - India
- European Bulk Services B.V. - Netherlands
- Orica Mining Services - Indonesia
- Kideco Jaya Agung - Indonesia
- PowerSource Philippines DevCo
- Sojitz Corporation - Japan
- Savvy Resources Ltd - HongKong
- Bukit Baiduri Energy - Indonesia
- Meralco Power Generation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Electricity Authority, New Zealand
- Antam Resourcindo - Indonesia
- IHS Mccloskey Coal Group - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- Billiton Holdings Pty Ltd - Australia
- Ministry of Transport, Egypt
- Chamber of Mines of South Africa
- Maheswari Brothers Coal Limited - India
- GVK Power & Infra Limited - India
- Makarim & Taira - Indonesia
- Energy Development Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- Petron Corporation, Philippines
- Cement Manufacturers Association - India
- Leighton Contractors Pty Ltd - Australia
- Coastal Gujarat Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- South Luzon Thermal Energy Corporation
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Maharashtra Electricity Regulatory Commission - India
- Heidelberg Cement - Germany
- Asmin Koalindo Tuhup - Indonesia
- Anglo American - United Kingdom
- Trasteel International SA, Italy
- Central Electricity Authority - India
- Siam City Cement - Thailand
- Rio Tinto Coal - Australia
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